Zero-based budgeting is a budgeting method where every penny is accounted for, so that your income minus your expenses equals zero.
For Johnny, who gets paid weekly, a projected budget for him may look something like this:
At the end of the week, before he made his student loan payment, his actual expenses were:
This left him with $5.51 before he made his student loan payment, so he decided to put the extra $.06 on the student loan, leaving him with no leftover money for the week. Next week, he will do it all over again.
With zero-based budgeting, you have to account for everything spent, so that you always reach zero before you begin again. Any leftover funds can be allocated towards debt like Johnny, savings, or a catch-all rollover account so that you have it if you need it in the future.
After trying a zero-based budget this pay period, the hardest part I’m finding is the expense tracking. That $14 I spent at Chick-fil-A? It was obviously a food expense, but it wasn’t all my food – I paid for someone else’s. Should I split it up between a food and a gift expense? Decisions, decisions. Indecision will keep me from updating my total spent, even though I know I’ve spent $14.
Cash envelopes are one way to keep up with spending: once the money in the envelope is gone, it’s gone. However, I do not like carrying cash so I have minimal envelopes. In the Chick-fil-A example above, I would have either needed to have both my food and gift envelopes with me, or transfer the amount paid for my niece from my gift envelope. It sounds good in theory, but that could result in multiple transfers to keep up with in a given day or week. Already some days my receipts just accumulate with me while I keep a rough tally of what’s going on in my head.
This is where other tools can come into place. I like the Fudget app, but as with anything else, tools are only effective if you use them. When I use it, it works fabulously. Don’t be like me. Learn from my journey. Use your tools to make it easier for yourself.
What do you do to help make your expense tracking easier? Does a zero-based budget work for you?